Micron to Buy Part of Hynix for $3.6 Billion

Technology: Acquisition would create the world's largest chip maker that would control one-third of the global market for computer memory.

After a long and uncertain courtship, Micron Technology Inc. agreed Monday to acquire the bulk of South Korea's Hynix Semiconductor Inc. to create the world's largest maker of memory chips in a deal worth $3.6 billion in cash and stock.

The union, which requires approval from antitrust regulators and the creditors of financially ailing Hynix, would create a juggernaut that would control one-third of the $11-billion global market for computer memory.

It also would further consolidate a troubled industry characterized in recent years by plunging prices and tepid demand from personal computer manufacturers.

"Ten years ago, you had 10 to 11 suppliers accounting for 80% of the business, and now you're down to three," said Dan Scovel, semiconductor analyst at Needham & Co. in New York, a technology research and banking firm. "It's a tough business."

If the Micron deal goes through, the other remaining major memory makers would be Samsung Electronics Co., Micron and Infineon Technologies.

The agreement calls for Boise, Idaho-based Micron to issue 108.6million shares and pay $200million in cash for six facilities that make dynamic random access memory, or DRAM, chips.

Micron also would acquire a 15% stake in Hynix's business in Flash memory and static access memory chips used in digital cameras, portable music players and cellular phones.

Micron has been unprofitable for three of the last four fiscal years, losing $625 million in the last fiscal year that ended in August.

Micron's shares gained $1.40, or nearly 5%, amid an overall market decline to close Monday at $30.90 on the New York Stock Exchange. Hynix shares fell nearly 7% on the South Korean stock market as investors feared the acquisition would leave them with little once the company's creditors carve up the cash.

The deal, in the works for the last four months and proposed Monday in a memorandum of understanding, is far from certain. For one, it requires the blessing of Hynix creditors, many of whom have argued that the $3.6-billion price is $1 billion too low.

The deal also needs approval from U.S. and South Korean antitrust regulators who may balk at signing off on a company that would control 34% of the global memory chip market.

Company officials and industry analysts, however, were optimistic that the deal would go through.

"We're realistic enough to know that there are challenges ahead, but we believe it's a good deal that benefits all parties," said Sean Mahoney, spokesman for Micron, which operates two design centers in California. "There will be hurdles to overcome, but getting to this point has been a challenge in itself."

John M. Geraghty, an analyst with Gerard Klauer Mattison in New York, predicted the deal would survive regulatory scrutiny. "Antitrust is usually a problem when someone controls the business and makes obscene profits," he said. "No one has been making profits in the DRAM business."